Inventory Control System Based on Control Charts to Improve Supply Chain Performances

Abstract

Inventory replenishment rules have been recognized as a major cause of the bullwhip effect and inventory instability in multi-echelon supply chains. There is a trade-off between bullwhip effect and inventory stability where mitigating the bullwhip effect through order smoothing might increase inventory instability. Therefore, there is a substantial need for inventory control policies that can cope with supply chains dynamics. This paper attempts to formulate an inventory control system based on a statistical control chart approach to handle the trade-off between order variability amplification and inventory stability. The proposed replenishment system, namely IR-SPC, incorporates individual control charts to control both the inventory position and the placed orders. A simulation study has been conducted to evaluate and compare the IR-SPC with a generalized order-up-to that has order smoothing mechanism. The comparisons showed that the IR-SPC outperforms both the smoothing order-up-to policy and the Min-Max inventory policy in terms of bullwhip effect and inventory performances. (Received in June 2013, accepted in January 2014. This paper was with the authors 1 month for 2 revisions.)